I am by no means a game designer, so I apologise in advance if I fail to use the proper jargon. Feel free to correct my mistakes.

My understanding is that, at the moment, in most if not all first-person shooters (such as L4D2 or Bioshock), the "3D audio" is generated by taking the player's position and displacement within the game into account, but mainly by playing on

balance (to indicate the direction to the source of a sound),

amplitude (to indicate the distance between the player and the source of a sound).

However, for a psychology experiment, I'd like to make my subjects play a custom first-person shooter with true binaural positional 3D audio using head-related transfer functions (HRTFs). If you don't know what I'm talking about, I invite you to listen to the binaural recording at this URL.

I know of only one game using true binaural positional 3D audio: Papa Sangre, but it's not an FPS.

My questions (all related) are:

Can any currently available game engine (Valve's Source?) be used to design such an FPS game?

If the answer to 1. is yes, do you have any useful links?

If the answer to 1. is no, has a game engine capable of such marvels been announced yet?

Are there signs that true binaural positional 3D audio will find its way soon in future FPS games? (I certainly hope so!)

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1 Answer
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For 1.: Papaengine, was used to make the game you've linked (Papa Sangre). The engine claims it's "the only true real-time binaural audio engine for iOS!", so they seem to be rather limited. Though, I wouldn't think iOS would be the best choice for a FPS.

There is this article from GarageGames that claims that FMOD is available for the Torque engine. Where FMOD claims:

The software mixer even has a 'HRTF' (Head-Related Transfer Function)
mode to provide 3D realism through headphones!